FAQs

Currency Futures

Can Banks trade on a Currency Futures Exchange?

Banks are allowed by the Reserve Bank of India to participate in the currency futures market. The AD Category 1 banks that fulfill the regulatory requirements are eligible to become clearing members and/or trading members on USE. All other banks can participate in the futures trading as clients only.

Are there international exchanges also dealing in currency futures?

Currency is the most liquid asset class amongst all underlying assets globally. Chicago Mercantile Exchange (CME), Euronext, LIFFE, Tokyo Financial Exchange are a few of the many exchanges that trade in currency futures.

How does the Indian Forex Market Work?

The Indian Forex market is regulated by the Foreign Exchange Management Act, 1999. The regulatory authority for the Indian Forex market is the Reserve Bank of India (RBI). However the Exchange traded currency futures market is regulated by SEBI through recognized stock exchanges based on the rules specified in the RBI-SEBI Standing Technical Committee Report on Exchange Traded Currency Futures.

Underlying Exposure: It is not necessary to have underlying exposure to trade in this market.

Default Risk: Trading on currency futures exchange gives a guarantee for settlement. There is a clearing corporation to guarantee the pay-in/pay-out of funds.

Leverage: The margins requirements are low. Also, since the profits or losses are collected / paid on a daily basis, the scope for building up of the mark to market losses in participants’ books is limited.

How is effective and efficient settlement ensured?

A clearing house is employed to act as counterparty to each trade. The trading in currency futures requires maintenance of initial, extreme loss and calendar spread margins with the clearing corporations. The initial margins are deducted from the liquid net worth of the clearing member on an online, real time basis.

Who can become a member of the exchange?

Any Resident Indian or Company can become a member on USE and trade in the currency futures market. At present Non-Resident Indians (NRIs) and Foreign Institutional Investors (FIIs) are not permitted to trade in futures market in India.